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TMI Blog2012 (6) TMI 564X X X X Extracts X X X X X X X X Extracts X X X X ..... year admitting the income of Rs. 32,44,880 under section 115J of the Income-tax Act, 1961 (hereinafter called as "the Act"). Subsequent to the completion of the assessment, it was noticed that in the computation of book profit, the assessee had reduced the withdrawal from the revaluation reserve account. The Revenue pointed out that the said amount of Rs. 8,65,459 was already reduced from the book depreciation worked out after revaluation, hence, further deduction was not permissible. In the circumstances, the assess- ment was sought to be reopened under section 148. The assessee defended the said course of action and contended that as per section 115JA(1)(i) of the Act, any amount withdrawn from the reserve account credited to the profit and loss account can be deducted while arriving at the book profit. The assessing authority, however, rejected the said contention and pointed out that the amount of Rs. 8,65,459 deducted from the book profit did not represent the amount withdrawn from the reserve or provisions which was credited to the profit and loss account. Thus, having taken the additional depreciation to the reserve account on the revaluation directly from the balance-sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee went on appeal before the Income-tax Appellate Tribunal. The Income-tax Appellate Tri- bunal allowed the claim of the assessee by merely stating the contention of the assessee that the transfer from the revaluation reserve was Rs. 0.08 crores and Rs. 1.17 crores alone was debited to the profit and loss account. Aggrieved by the same, the Revenue is on appeal before this court. 5. Learned standing counsel appearing for the Revenue placed reliance in the case of Indo Rama Synthetics (I.) Ltd. v. CIT reported in [2011] 330 ITR 363 (SC), wherein the apex court considered an identical situation falling under section 115JB of the Act. Barring the difference in the assessment year involved therein, viz., 2000-01, the law declared by the apex court in the said decision would fully cover the case on hand. Learned standing counsel pointed out that on the admitted fact that the revaluation reserve was created with reference to the assets side of the balance-sheet and admittedly, the depreciation reserve not being one created out of the pro- fits of the company by way of appropriation of the profit of the company, the assessee cannot sustain its claim for a reduction sole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt, the provisions of section 115JA, particularly with reference to the Explanation contained therein, need to be noted : "115JA. (1) Notwithstanding anything contained in any other pro- visions of this Act, where in the case of an assessee, being a company, the total income, as computed under this Act in respect of any pre- vious year relevant to the assessment year commencing on or after the 1st day of April, 1997 (hereafter in this section referred to as the relevant previous year), is less than thirty per cent. of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent. of such book profit . . . Explanation.-For the purposes of this section, 'book profit' means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by- (a) the amount of income-tax paid or payable, and the provision therefor ; or (b) the amounts carried to any reserves by whatever name called ; or (c) the amount or amounts set aside to provisions made for meet- ing liabilities other than ascertaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in effect, impact the net profit as shown in the profit and loss account. Refer- ring to the accounting principles, the apex court pointed out that unless an adjustment has the effect of increasing the net profit as shown in the profit and loss account, that entry cannot be said to be a credit to the profit and loss account and, therefore, though the amount has been literally credited to the profit and loss account, in substance, there is no credit to the profit and loss account. Thus, in terms of the abovesaid principle, the Supreme Court held that if the reserves created are not referable to the profit and loss account and the amount had not gone to increase the book value at the time of creation of the reserve, the question of deducting the amount transferred from such valuation reserves from the profit and loss account does not arise at all. The apex court pointed out that reduction under sec- tion 115J(1)(i) to the Explanation could have been availed of only if such revaluation reserve had gone to increase the book profit. Thus, at the time of creation of revaluation reserves, the benefit of reduction could not be allowed. 11. As far as the present case is concerned, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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